Lenihan rules out hike in corporate tax rate

FINANCE Minister Brian Lenihan has ruled out any increase to Ireland’s corporation tax but confirmed other tax hikes will form part of the next budget.

As the Government prepares to present the EU with a plan for four more years of harsh budgets, Mr Lenihan’s department said the minister had “acknowledged that taxation will form part of the solution” to the black hole in the public finances.

And public servants might have to brace themselves for pay cuts after his younger brother, junior minister Conor Lenihan, signalled the unravelling of the Croke Park agreement.

“Huge and difficult decisions still remain to be taken about downsizing the state,” he said.

“If progress is not made soon, it will probably signal the end of the Croke Park agreement and the partnership process as we know it.”

Water charges and property taxes should not be ruled out either, according to the author of the Bord Snip report, Colm McCarthy, who said some of his recommendations should be revisited and capital projects, including Dublin’s Metro North, should be scrapped.

The EU’s economic and monetary affairs commissioner Ollie Rehn said it was a “fact of life” that Ireland could no longer continue as a low-tax country but would become a “normal-tax country”.

Asked if he believed Ireland’s corporation tax should increase as part of that change, he said he did not wish to take a stand on an issue which was for the country itself to decide but said he would “not rule out any option at this stage”.

The American Chamber of Commerce in Ireland called on the Taoiseach to “categorically rule out any increase in Ireland’s corporation tax rates” which is seen as crucial in keeping multinationals in Ireland and attracting new business.

President of the Chamber Lionel Alexander called on the Taoiseach to send out a “clear message” to these businesses after Brian Cowen failed to rule out any option when quizzed about Mr Rehn’s comments. Asked three times if corporation tax would be examined, Mr Cowen said the Government needed “time and space” to examine all issues as it prepared a four-year budgetary strategy published in November.

“I think the Government need to be given the time and space to sit down and work through these issues,” Mr Cowen told Today FM.

When it was put to him that he had previously ruled out any changes to corporation tax, Mr Cowen said: “These are matters for national governments to determine for themselves. But it’s really important not to be drawing any speculative conclusions whatever.”

But Mr Lenihan’s department said: “The Government has always made it clear that the corporation tax rate will remain at 12.5%.

“The 12.5% corporation rate is a cornerstone of the Irish industrial policy.”

US companies employ over 100,000 people in Ireland and Mr Alexander warned: “If Ireland isn’t a compelling location for companies to conduct their business, they will locate elsewhere and the benefits that accrue in terms of employment, the contribution to Ireland’s tax take and the development of innovation will be lost.”

Mr Cowen also downplayed suggestions that Ireland would ultimately need to resort to an EU or IMF bailout. “I think it’s important to point out that the Irish Government, the Irish people, are determined to deal with these issues ourselves,” he said.

Fine Gael leader Enda Kenny said the Government’s plan to outline a four-year budgetary strategy in November would have no credibility because the markets knew the coalition wouldn’t last much longer.

But he conceded that by outlining such a strategy and presenting it to Brussels, the Government would effectively be forcing Fine Gael into sticking with the plan if it assumed power.

“Obviously, we have to face truth and reality here. And what Fine Gael have been working on in the past period is to prepare our plans to rectify this problem,” Mr Kenny said.